The Ministry of Finance and Economic Development must urgently step up on transparency and accountability around tax expenditures.


11 August 2023


The recent release of ZIMRA’s 2022 Annual Report has amplified the call by CSOs and recommendations from the 2022 Open Budget Survey (OBS) [1] on theneed for the Government to step up on transparency and accountability of tax expenditures. The published ZIMRA report disclosed that the total revenue foregone because of tax incentives in 2022 stood at ZWL 1.6 trillion, compared to ZWL 388.38 billion in 2021. The revenue foregone was from exempt supplies, zero-rated supplies, rebates, suspensions, and trade agreements. In 2020, the amount of revenue forgone through tax expenditures was ZWL 111.55 billion. The analysis of these figures depicts a general trend where tax expenditures are increasing, constituting a considerable proportion of the total amount of revenue that is raised by the treasury. The annual revenue figures for 2020, 2021, and 2022 stood at ZWL 181.95 billion, ZWL 463.57 billion, and ZWL 1.9 trillion, respectively. These figures represent the ratios of tax expenditure to total tax revenue of 61.3%, 83.8%, and 84% in 2020, 2021, and 2022, respectively. Without going much into methodological issues, the ratio of tax expenditure to total tax revenue collected of 84% sounds incredibly significant when compared to South Africa’s average ratio of approximately 18.8% when South Africa’s tax expenditure figures for 2018 and 2019 are used. 


The current transparency and accountability landscape for tax expenditures fails to meet the bar. 

The general trend has been that, despite huge impacts on tax revenue mobilization for financing economic development, tax incentives, which result in tax expenditures and revenue forgone, are not fully, transparently, and prudently accounted for in the national budget. The efforts being made by ZIMRA to consistently provide tax expenditure figures in its annual reports are commendable. However, the key gap is that there is no compilation of a full Tax Expenditure report that shows disaggregated estimates of tax expenditures by tax heads, policy goals, beneficiaries, and social impacts that can be tabled before parliament as part of the national budget transparency process. The information that is currently being disclosed is failing to meet the bar in terms of facilitating Parliament’s monitoring and oversight roles on the social and economic impacts of tax expenditures, informing the design of effective tax regimes, and enhancing transparency and accountability on national tax expenditures.  

The current transparency and accountability framework for tax expenditures in the national budget suffers not only from a lack of comprehensiveness in terms of coverage of tax incentives but also from non-consistency. For example, the focus of the two National Budgets that reported on revenue forgone in the last 5 years, namely the national budgets of 2019 and 2022, was on rebates and tax concessions for goods and capital equipment imports, yet ZIMRA has information on revenue forgone facilitated by trade agreements such as Double Taxation Agreements (DTAs). In the 2022 National Budget, it was reported that in the period from 2016 to August 2021, the value of goods imported under tax rebates to productive sectors, including the mining sector, was ZWL 225 814 million and revenue forgone was ZWL 59 673 million. In the same period, the total amount of capital equipment subjected to duty concession facilities was ZWL 19,813 billion, and the revenue forgone was 3.8 billion. Sadly, the 2020, 2021, and 2023 National Budgets missed disclosure of the information with regards to revenue forgone out of tax incentives such as duty concessions, In the 2021 National Budget, only information with regards to the types of duty concessions being accessed in all sectors of the economy, including mining, was provided. 

Transparency and accountability of tax expenditures are critical to uprooting overgenerous tax incentives in the mining fiscal regime. 

Tax incentives have remained one of the Government’s primary tools to attract foreign direct investment, particularly in the mining sector. The mining fiscal code contains many tax incentives, including full capital redemption in the first year, perpetual carryover of mining losses, import tax exemptions on capital goods, the reinstatement of mineral royalties as a deductible expense for income tax purposes, royalty taxes, corporate income tax, special mining lease tax incentives, tax holidays, and tax incentives provided for by the Zimbabwe Investment Development Agency (ZIDA) under the Special Economic Zones (SEZs) set up. A case in point is the tax holiday with a 5-year sunset clause that was granted to Great Dyke Investments (GDI) in January 2021 [2], comprising corporate income tax, additional profit tax, and withholding taxes on dividends remitted to some shareholders. Overgenerous tax incentives facilitate the race to the bottom by reducing the effective rate of taxation. It is through this reasoning that the 2015 High Level Panel on Illicit Financial Flows (IFFs) from Africa established overly generous tax incentives to be one of the conductors of IFFs from Africa.  

The International Monetary Fund’s (IMF) Tax Avoidance in Sub-Saharan Africa’s Mining Sector 2021 showed that Guinea-Bissau could have lost US$400 million to an investor through proposed tax or royalty reductions over the mine life. “The investor proposed an investment contract with zero Corporate Income Tax (CIT) for an initial period of production, half-rate CIT thereafter; no limitations on interest; no VAT or customs duties; no dividend or interest withholding taxes; no capital gains tax; a reduced royalty rate; CIT accelerated depreciation; and stabilized fiscal terms (unless tax changes were advantageous)”. In Zimbabwe, the Government could have shot itself in the foot with the overly concessionary sweetheart special mining lease agreement with ZIMPLATS in 1994 when it included a stabilization clause that subjected the company to a 2.5% rate for royalty payments over 25 years. The Government had to forgo revenue in millions of dollars because of failing to legally raise the royalty rate from 2.5% to 10% in 2014 when the need arose. The revenue forgone could have been used to finance the realization of social and economic rights as enshrined in the constitution. Despite such evidence on the opportunity cost of awarding overgenerous tax incentives on domestic resource mobilization, a complete picture of the impact of the mining tax incentives is hard to see in the current tax expenditure reporting mechanism by ZIMRA and Treasury. There is no disclosure of revenue forgone from incentives that affect tax heads such as royalties and Corporate Income tax. 

Locating the importance of transparency and accountability in tax expenditures in the roles played by tax.  

The four roles of tax provide justification for tax expenditures and the need to ensure transparency and accountability in the way they are incurred. The four roles (the 4Rs) are Revenue, Redistribution, Repricing, and Representation.  

On Revenue, the Government must raise sufficient resources to invest in the progressive realization of human rights—universal access to basic education and health services, for example. Taxation is the most significant, accountable, and sustainable way to mobilize domestic revenue (DRM). Whereas the primary function of tax laws is to mobilize resources, government spending is also executed through tax waivers and exemptions targeted to support a variety of policy objectives. These include but are not limited to the need to increase access and affordability of certain goods to support specific population groups like people with disabilities (PWDs), reduce production costs, lure, or promote foreign and domestic investment, technological transfer, employment creation, foreign currency generation, and rural development, among other objectives. The provision of such tax exemptions or waivers reduces the amount of taxes that would otherwise have been collected. This justifies the need for transparency and accountability in government spending via tax expenditures. Rightly so, the current economic blueprint, the National Development Strategy (NDS 1), acknowledges that “tax incentives represent forgone fiscal revenue. Notwithstanding the nexus between fiscal incentives and economic growth, the government will continuously carry out cost-benefit analyses of the existing fiscal incentives to guide the review and streamline those found to be redundant.” Anchored on this overall policy direction, the Treasury, in collaboration with the Zimbabwe Economic Policy and Research Unit (ZEPARU), commendably indicated in the 2022 National Budget that it was going to commission a study to evaluate the impact of tax incentives on social and economic outcomes in Zimbabwe. One would have hoped that the findings from this study would at least be made publicly available and tabled before the Parliamentary Portfolio Committee on Budget and Finance for scrutiny. 

On Redistribution, fundamentally, the Constitution of Zimbabwe, Section 298 (1) (a), requires that the burden of taxation must be equitably shared. The government, therefore, is compelled to raise taxes progressively, meaning the rich must pay more taxes and the opposite is true for the poor. Overly generous tax incentives that target corporations and high-net-worth individuals can retard the progressivity of the tax regimes, as the wealthy end up paying a lesser share of taxes in proportion to their income, leading to a regressive taxation regime. Furthermore, Section 298 (1) (b) (iii) directs that “expenditure must be directed towards the development of Zimbabwe, and special provisions must be made for marginalized groups and areas.” Fighting poverty and gender inequality is one of the pillars of the UN’s Sustainable Development Goals (SDGs), and Domestic Resource mobilization is the key means of implementation of the SDGs. The government’s capacity to reduce gender inequality is determined by the size of resources allocated towards the financing of social services and infrastructure, which help reduce the burden of unpaid care work. Because tax expenditures represent revenue forgone by the government and they hurt the redistributive role of taxation by thinning investments required to optimize the provision of public services, their impact on basic service provision must be measured for transparency and accountability purposes. 

The repricing role of taxation requires the government to discourage the consumption of goods and services that result in societal or environmental harm. For this reason, sin taxes like excise duty are imposed on tobacco and alcohol, and carbon taxes are imposed on the use of fossil fuels. Likewise, tax incentives can be used to promote the generation of clean energy and the transition from carbon-emitting fuels. 

The representation role of taxation embodies the social contract between the government and the governed – the citizens. Precisely, that is the reason the Constitution, Section 298 (1) (d), requires that public funds be expended transparently, prudently, economically, and effectively. In addition, Parliament must have oversight of all state revenue and expenditure. Therefore, politically motivated, obscure, corrupt, and inefficiently awarded tax incentives must be quarantined from infecting the social contract between the government and the taxpayer. The national budget formulation process is one of the mechanisms that allows the public to participate in the development of the country. Therefore, it is pertinent that disclosure of the estimated revenue forgone by the government through all tax incentives be disclosed as part of the budget proposal that is released before public hearings on the national budget are conducted. Commendably, ZELA has been building the capacity of relevant parliament portfolio committees to raise motions and questions on the need for the Minister of Finance to table a full expenditure report to facilitate debates in parliament. 

It is a huge plus that the Constitution, the National Development Strategy (NDS1), and the recently adopted SADC model law on Public Finance Management provide a clear framework for public monitoring and accountability of tax incentives. What is pertinent is the alignment of the Public Financial Management Act with the Constitution and best practices on tax expenditure reporting. Unlike Kenya and South Africa, Zimbabwe lacks a specific legislative provision in its Public Financial Management Act (PFMA) on full tax expenditure reporting. In Kenya, the tax expenditure report is published in terms of Section 77 of the Public Financial Management Act, 2012. In South Africa, the tax expenditure report for the 2021 national budget review stipulates that the government is systematically reviewing all business tax incentives to uproot those deemed redundant, ineffective, or inequitable. A key success highlighted from South Africa’s tax expenditure report is that sunset clauses or end dates were prescribed for all the tax incentives to ensure that tax incentives are not perpetuated in the tax system and escape regular evaluation for efficacy. 

Summary of recommendations 

The following specific recommendations are critical for the Government of Zimbabwe to move a step higher on transparency and accountability of tax expenditures: 

  • The Ministry of Finance and Economic Development must amend the PFMA and align it with the constitution and the SADC model law on tax expenditure reporting. The PFMA Bill must include specific clauses to allow for the development of a full tax expenditure report as part of the budget proposal or a statement that is released before public hearings on the budget formulation are conducted. The Act must be amended to include provisions that provide access to information on beneficiaries of tax incentives, the goals of tax expenditures, and the periodic evaluation of tax expenditures. 


  • The Parliament Portfolio Committee (PPC) on Budget and Finance to be constituted in the 10th Parliament must request treasury for the development and public disclosure of the tax expenditure report focusing on the 2024 National Budget cycle. The committee must also push for the alignment of the PFMA Act with the Constitution, the SADC model law on Public Finance management, and other best practices on tax expenditure reporting. 


  • The Committee on Budget and Finance to be constituted in the 10th parliament must request that the Treasury release the report from the research conducted on the impacts of tax incentives on social and economic development for scrutiny. 


  • The Treasury and ZIMRA must adopt lofty standards in reporting on tax expenditures by making sure that estimates of tax expenditures include revenue forgone from all tax incentives in a disaggregated. This is in line with the recommendations from the 2022 Open budget survey report for Zimbabwe. 


  • Civil Society Organizations (CSOs), including Publish What You Pay (PWYP), should continue to advocate for full tax expenditure reporting to ensure monitoring and public oversight on the social and economic impacts of tax and public participation in the planning of incentives. 

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